Staggering loss for Fannie Mae
(12 November 2008 – USA) For Fannie Mae, one of the lenders at the centre of the sub-prime mortgage crisis, losses have hit dramatic levels with a third quarter loss of US$29 billion (A$44.2 billion).
Fannie Mae, hit by growing home-mortgage defaults and falling home prices, re-valued assets in the third quarter 2008 to record a massive profit hit.
The third quarter result was driven primarily by a US$21.4 billion non-cash charge because of assets on the balance sheet that have not retained their value in the current environment.
The assets are tax credits that were listed on the balance sheet that critics have previously said should have been written down.
Fannie Mae said that it is now likely that the company will not be able to make use of these tax credits because it won't produce enough taxable income in future quarters to realise the full value of these tax assets.
The lender also recorded a significant US$9.2 billion in credit-related expenses, including losses on foreclosures and provisions for future losses. These expenses have arisen from the ongoing deterioration in mortgage credit conditions and declining home prices.
The loss for the quarter compares to a US$2.3 billion loss for the second quarter in 2008, including US$5.3 billion in credit related expenses.
Revenue for Fannie Mae was up slightly in the third quarter to US$4.1 billion.
Fannie Mae also said that it’s net worth, or assets less liabilities, was US$9.4 billion as of September 30, down from US$41.4 billion three months earlier.
Fannie Mae would need funding, from the Federal Treasury, to remain in business if its net worth fell below zero, which Fannie Mae said could happen if trends in housing and financial markets continue to worsen.
The third quarter result was driven primarily by a US$21.4 billion non-cash charge because of assets on the balance sheet that have not retained their value in the current environment.
The assets are tax credits that were listed on the balance sheet that critics have previously said should have been written down.
Fannie Mae said that it is now likely that the company will not be able to make use of these tax credits because it won't produce enough taxable income in future quarters to realise the full value of these tax assets.
The lender also recorded a significant US$9.2 billion in credit-related expenses, including losses on foreclosures and provisions for future losses. These expenses have arisen from the ongoing deterioration in mortgage credit conditions and declining home prices.
The loss for the quarter compares to a US$2.3 billion loss for the second quarter in 2008, including US$5.3 billion in credit related expenses.
Revenue for Fannie Mae was up slightly in the third quarter to US$4.1 billion.
Fannie Mae also said that it’s net worth, or assets less liabilities, was US$9.4 billion as of September 30, down from US$41.4 billion three months earlier.
Fannie Mae would need funding, from the Federal Treasury, to remain in business if its net worth fell below zero, which Fannie Mae said could happen if trends in housing and financial markets continue to worsen.
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